The first statement proposed by Mr.

Mountulsky is the Jurisdictional Theory; it is based on the

idea that the state within its jurisdiction holds the complete supervisory powers to regulate any
international commercial arbitration.

This theory doesn’t invalidate the idea of an arbitration agreement and procedures rather, it
implies that these agreements and procedure needs to be regulated by national laws and the
validity of an arbitral award has to be decided by the laws of place of seat and the country where
the recognition or enforcement is asked for. The proponents of this theory believe that the
arbitrators resembles the judges of national courts as their powers are drawn from the states by
the means of rule of law of that particular jurisdiction. The arbitral award given by the arbitrators
are given the same status as a judgment provided by the judges of any national court.

Under jurisdictional theory the courts in the country where enforcement is sough also have a
supervisory power over the issue of arbitrablity at the stage of enforcement. Also, according to
Article V (2) of the New York Convention the courts have the discretion to refuse to recognize
or enforce an arbitral award if it finds that “The subject matter of the difference is not capable
of settlement by arbitration under the law of that country” or “recognition or enforcement of the
award would be contrary to the public policy of that country.”

Status of arbitrator in Jurisdictional Theory

The jurisdictional theory mainly follows the approach of delegation theory. According to the
delegation theory, “to settle a dispute between the parties arbitration has to have a delegated
authority given by the state in which he sits to conduct arbitration.” In other words the arbitrator
to give any award must have some power that is delegated to him by the state otherwise the
award given by him will be null and void.

Due to this delegated power, the proponents of the jurisdictional theory deny that the arbitrator’s
power is originated from the parties’ arbitration agreement. They maintain that the arbitrator’s
power is drawn from the state by means of the local law on the ground that it is in the public
interest to permit private individuals to decide disputes when the parties have agreed.
While the argument proposed by Mr. Kellor is the Contractual Theory and it argues that
international commercial arbitration originates from a valid arbitration agreement between the
parties and that, therefore, arbitration should be conducted according to the parties’ wishes.

The proponents of this theory argue that arbitration is based on the agreement between the
parties. According to them parties have autonomy to decide the relevant issues concerning the
arbitration procedure and this autonomy should remain intact.

An arbitration agreement between the parties is regarded as a contract which expressly states the
parties’ wish to have their disputes resolved by means of international commercial arbitration.
This kind of contract is voluntarily made between the parties, and allows them to determine the
time and place of arbitration, select the arbitrators to hear their case and choose the laws
governing both procedural and substantive matters. And this should not be interfered by the
power of state and the pacta sunt servanda should prevail.

Status of arbitrator in Contractual Theory

The contractualists believe that the arbitrators are the agent of the parties who are there to resolve
the issues. This agent theory was first invoked by Merlin who believed that arbitrators were, in
fact, the agents of the parties. He was of the opinion that arbitrators obtained their powers and
authority from the parties’ arbitration agreement when they were appointed and being the agent
of the parties arbitrators represent the parties who appoint them to resolve the dispute according
to the parties’ instructions. However, the decision made by the agent i.e. arbitral award will have
the binding effect on the parties.

However, Lainé proposed opposite views and said that the functions of arbitrators are
contradictory to the agent theory. With respect to the relationship between principal and agent,
the agent works on the principal’s behalf in their best interest. However, according to Lainé, this
does not apply to the relationship between arbitrators and the parties within the present
arbitration framework.